The IC-DISC offers exporters the following
tax and treasury benefits using dividend and deferral.

Increased cash paid as dividends
taxed at the 15% rate for individual shareholders

Deferral of IC-DISC income from current taxation
(up to $10 million annual revenue limit)

Increased cash flow for exporter

Low-cost working capital for
export growth and R&D (R&D
tax credits applicable) using a producer’s loan or accounts
receivable financing

Lower effective tax rate

Reduced taxable base at exporter level

Elimination of double taxation in C corporations

Protection of IRC safe harbor commission provisions.

To instantly calculate your IC-DISC
dividend benefits, use our Quick
Calculator. For a more detailed analysis
of your dividend and deferral benefits, please complete our IC-DISC
Inquiry Form and we will prepare a confidential, FREE IC-DISC
Tax Benefit Report for you within 2 to 3 days. There is no cost or obligation.
For more information, please contact Ms. Tamara Crews, Vice President
- Professional Markets, at 800-894-8366 or tcrews@exportassist.com.

Background
The Domestic International Sales Corporation (DISC) was enacted into law with
the Revenue Act of 1971 for eligible exports beginning on or after January
1, 1972. In 1984, it was changed to an Interest Charge Domestic International
Sales Corporation (IC-DISC) (IRC Sections 992, 993, 994, 995) in response to
a ruling from the World Trade Organization (WTO). The 1984 legislation also
put an annual revenue 'cap' of $10,000,000 on its use. When qualified export
receipts exceed this cap in a taxable year, the income attributable to $10,000,000
in export revenue can be deferred and any remaining income distributed as dividends
to the shareholders of the IC-DISC. The Jobs and Growth Tax Relief Reconciliation
Act of 2003 lowered the dividend tax rate to 15%.

Structure
and Compliance
The IC-DISC is a domestic corporation that has a single class of stock with a
minimum par value of $2,500. An IC-DISC election must have been made and not
terminated, and it must meet the following requirements:

95% Qualified Gross Receipts Test

sales or leasing of certain qualified export property

qualified dividends

interest on any obligation that is a
qualified export asset

engineering or architectural services

95% Qualified Export Asset Test

accounts receivable

funds for investment

obligations of Ex-Im Bank and PEFCO

reasonable working capital

obligations arising from producer's loans

stock certificates of related foreign export corporations,
such as a Foreign International Sales
Corporation (FISC).

In order to qualify for an IC-DISC, the U.S.
exporter must have export property that:

is manufactured, produced,
grown or extracted in the United States by a person other than
an IC-DISC

is held primarily for sale, lease or rental
for direct use, consumption or disposition outside the United
States, and

contains
a minimum of 50% U.S. content.

Determination of Commission Income
The commission income of the IC-DISC is based on the income and expenses
related to the export sales of the exporter and is computed using
one of the following two methods, whichever is greater (IRC Section
994(a)):

THE “4-PERCENT” GROSS
RECEIPTS METHOD
The commission that the IC-DISC may earn on the export transactions
of the U.S. exporter will not exceed 4% of the qualified export
receipts of the IC-DISC and the U.S. exporter.

THE “50-50” COMBINED
TAXABLE INCOME METHOD
Under this method, the IC-DISC commission earned on export transactions
of the U.S. exporter will not exceed 50% of the combined taxable
income of the IC-DISC and the U.S. exporter.

The maximum commission the IC-DISC
may charge is the sum of the amount of income computed under 1) or
2) above plus the expenses that the IC-DISC incurs. This commission
is a qualified export receipt and deductible by the U.S. exporter
under IRC Section 993(a)(1)(A). When the U.S. exporter is a privately-held
C corporation, since the commission paid to the IC-DISC cannot exceed
the combined taxable income of the exporter and the IC-DISC, it cannot
cause a loss to the exporter on export sales but may cause an acceptable
domestic loss upon consolidation.

The net income of the IC-DISC computed using
one of these two methods is not subject to current taxation but may
be deferred up to $10,000,000 in gross receipts with the remainder
deemed distributed to its shareholders (IRC Sec. 995(b)(1)(E)). The
IC-DISC is allowed to retain the income attributable to the best
$10,000,000 of gross receipts to maximize this deferral. The shareholder
of the IC-DISC would pay interest on the deferred tax liability at
the base period T-bill rate (the annual rate of interest equivalent
to the average investment yield of U.S. Treasury bills with annual
maturities; the rate is 2.48% for the period ending September 30,
2008). Should the U.S. exporter decide not to defer the net income,
it may be received as a dividend.

IC-DISC Ownership
Private Exporter
When the exporter is a privately-held pass-through company, such
as an S corporation, LLC or partnership, it is recommended that
the IC-DISC be owned by the exporter. When the exporter is a privately-held
C corporation, it is recommended that the IC-DISC be owned directly
by individual shareholders in order to avoid double taxation at
the C corporation level. The structure of the IC-DISC owned directly
by shareholders is illustrated below.

Public Exporter
When the exporter is a publicly-traded corporation, the IC-DISC should
be owned directly by the exporter. The exporter could benefit most
by using the IC-DISC to factor export invoices (discussed below).

ADDITIONAL IC-DISC
SERVICES

IC-DISC
Services to Increase Commission Income

Based upon the exporter's profit margins,
export sales volumes and business structure, there could be additional
financial strategies and export activities included in the IC-DISC.
These IC-DISC activities managed by Export Assist can increase revenue
and expand commission income beyond the basic IC-DISC safe harbor
commission structure thereby creating additional after-tax benefits.
They can also be used to comply with the Qualified Export Asset Test
on any of the revenue being deferred.

Export
Invoice Factoring (Discounting)
The IC-DISC could be structured to have two sources of revenue:
the sales commissions from export transactions and the invoice
discounts derived from the purchase of invoices by the IC-DISC
that are connected to the commissions paid. The total income is
a combination of the sales commission and the invoice discounts,
thereby increasing IC-DISC profits for dividend or deferral. Exporters
with up to $300,000,000 in export sales can use invoice factoring
to maximize the annual export revenue cap of $10,000,000, which
is deferred from taxation. Export Assist performs export invoice
factoring services, including credit analysis and accounts receivable
management, to support the assumption of credit risk. Factoring
requires an IRC Section 482 transfer pricing study.

Foreign
International Sales Corporation (FISC)
The IC-DISC can own 100% of a Foreign International Sales Corporation
(FISC) that is located in a jurisdiction outside of the fifty United
States and Puerto Rico. Export Assist manages these FISCs at its
office in the U.S. Virgin Islands. This IC-DISC/FISC combination
provides the maximum export income deferral available under the
$10,000,000 annual revenue cap provision. This is accomplished
by having the FISC buy and on-sell inventory to foreign customers
to generate export revenue and then adding the IC-DISC commission
from these export transactions. The commission paid to the IC-DISC
is based on the safe harbor method. The FISC buy/sell activity
is supported by an IRC Section 482 transfer pricing study. In order
to provide the broadest base for the transfer pricing study, Export
Assist analyzes the exporter’s export economic activities
to determine which ones could be transferred to the FISC. In addition,
Export Assist provides all FISC management and general accounting
services.

Export
Promotion ActivityExport Assist manages export promotion
activities for the IC-DISC under IRC Section 994 and Treasury Regulation
Section 1.994. These export promotion activities are costs incurred
by the IC-DISC to promote export sales. They consist of the ordinary
and necessary expenses of the IC-DISC under IRC Section 162, such
as advertising, market studies, sales commissions, warehousing,
other selling expenses, freight, cost of packaging, and cost of
designing and labeling. The export-related expenses paid by the
IC-DISC are reimbursed by the exporter plus 10%. This 10% increases
IC-DISC revenue on a “cost plus” basis. Obtaining these
benefits requires that the IC-DISC convert to a safe harbor, 482
or unrelated buy/sell structure.

Asset Management
If the objective of the IC-DISC is to defer income, then leading up
to the last business day of the calendar or fiscal year, cash might
need to be converted to other export assets or existing export assets
might need to be traded. This is done to ensure that the IC-DISC meets
the Qualified Export Asset Test on the last business day of each year,
thereby maintaining full compliance on deferred revenue. The cost of
the deferred revenue is currently an annual interest charge of 2.48%
based on what you would have paid in corporate taxes on that revenue.

Qualified export assets include:

Loans - producerís loans and accounts receivable loans (with
undivided interest) that are used to fund low-cost export working
capital, international buyer financing and research and development.
Producerís loans may be made to the parent company or other export companies.

Notes - Private
Export Funding Corporation (PEFCO) notes with the full faith
and credit of the U.S. government for 100% of face value.